Time and time again, business owners are warned against mixing their business finances with their personal finances. A failure to keep business and personal finances separate can result in significant costs and even legal liability for the business owner. Nonetheless, many business owners use a single financial account for all business and personal transactions and then, at a later date, attempt to manually reconcile the transactions to separate business and personal ledgers. Even those business owners who maintain separate accounts and credit cards for business and personal use are often inconvenienced by the difficulty of predicting when a specific credit card will be useful and keeping that card in an accessible location. Indeed, even organized business owners often face situations where they need to make a purchase for a business, but only have personal credit cards in their wallets.
For example, a business owner may stop into an office supply store to pick up school supplies for his child. While in the store, the business owner may see that the store is having a promotion for printers and remember that the printer in his shop's office has been performing poorly. Because the owner had only planned on making personal purchases while shopping for school supplies, he does not have his business credit card on hand. Nonetheless, the owner decides to go ahead and purchase the printer using his personal credit card. Although this may not seem like a significant event, actions such as this can have serious consequences for the business owner in terms of accounting costs, access to credit, tax liability, and legal responsibility.
Tracking financial records, regardless of a business owner's organizational skills and recordkeeping system, is an unending and often expensive undertaking. Failing to properly separate business and personal transactions makes the already tedious task of recordkeeping even more difficult and requires a significant outlay of resources, even for a relatively simple business.
If bookkeeping and accounting are done in-house, the business's owner or employees must spend valuable working hours sorting through transactions to determine whether they are of a personal or business nature. If outside bookkeepers and accountants are hired, they must spend, and bill, their time to organize and reconcile the relevant transactions. Regardless of whether the business owner spends her own time, utilizes employee time, or hires professionals, mixing business and personal transactions results in a significant outlay of time and money.
Beyond the accounting difficulties that arise from mixing personal and business transactions, combining personal and business transactions can have a significant effect on an entrepreneur's ability to access business and personal credit. Not only does maintaining separate business and personal accounts protect an entrepreneur's personal credit scores, but many experts also suggest that a company should have a business account unassociated with the business's owner's personal account so that the business may build its own credit profile. Indeed, one of a business's most important tools is its credit. When a business develops a credit identity separate from its owner's personal credit identity, the business builds its credit history and, in turn, has significantly more borrowing power than it otherwise would and may be able to access many times more credit than the owner could as an individual.
For an entity, the key to starting a business credit history is for its owner to avoid using personal credit to finance business purchases or expenses. Opening a business credit card allows the business to build credit. Unfortunately, a common mistake among business owners is using personal credit cards to finance business operations, which results in the business owner taking on personal responsibility for the business debt and running the risk of damaging his or her personal credit. Many entrepreneurs who rely on personal credit to run their businesses ultimately max out their own credit lines.
Additionally, maintaining separate business and personal accounts makes it significantly easier to identify business expense deductions for tax purposes. Mixing business and personal accounts makes it easy to overlook income and expenses that should appear on financial statements and tax returns. Furthermore, failure to maintain separate business and personal accounts can reduce the amount of acceptable deductions the IRS will allow.
Beyond the benefits of keeping payments for business and personal expenses separate, there are significant legal risks associated with paying for business expenses with personal funds and vice versa. If an owner fails to keep sufficient distance between her personal finances and her business finances, she may be held personally responsible for the company's debts. Said another way, if the business is sued and its finances are not clearly distinguishable from its owner's finances, the owner may be required to use her personal assets to pay the company's debts. Thus, an owner who fails to keep her business and personal finances separate risks losing her personal assets if the business fails.
Despite the obvious importance of separating business and personal finances, many business owners charge all business and personal expenses to a single credit card and attempt to manually reconcile the transactions to business or personal ledgers at a later date. As discussed above, however, this method is expensive as it requires a significant outlay of time to separate and organize the transactions. Furthermore, this method may expose the owner to unwanted financial and legal burdens, and if the card used is a personal card, prevents the business from developing credit.
Even those business owners forced to use a personal credit card for businesses purchases because of an inability to secure a business credit account will benefit from keeping a personal credit card strictly dedicated to business purchases. By maintaining a personal card dedicated to the business, the business owner will more accurately separate business and personal expenses, which will reduce accounting costs and allow the owner to more accurately identify the deductions to which he or she is entitled.
What is needed is a method and apparatus that allows a user to access multiple accounts, whether business or personal, with one card.